Where to start with insurance: Deductibles

Car insurance deductibles

With car insurance, your deductible includes your out-of-pocket expenses before your insurance company covers the rest of your auto insurance claim. For example, if you took a turn a little too quickly and knocked into a street sign, you’d file a collision claim with your insurance company. If you had a $1,000 deductible and your car experienced $2,500 worth of damage, you’d pay the initial $1,000 before the insurance company paid the remaining $1,500.

Types of car insurance deductibles

Most auto insurance deductibles are either $500 or $1,000 annually and most commonly apply to collision, comprehensive and uninsured property damage coverage.

• Collision coverage: Collision coverage refers to accidents where you collide with something, like another vehicle, a wall, a guardrail or a street sign — regardless of who’s at fault. If you have collision coverage and the damage was from a covered loss, your insurance company will compensate you for it. Your collision deductible is the amount you’d pay before the insurance company compensates you.
• Comprehensive coverage: Think of this as the “other than collision” type of coverage. Weather, animals, vandalism and theft all fall under this category. Like collision coverage, as long as the damage falls under a covered loss, you’ll receive a claim payout, minus the amount of your deductible. 
• Uninsured motorist property damage (UMPD): Uninsured (or underinsured) coverage refers to an accident with another vehicle where that driver either has no insurance or has used up the limits on their liability coverage before your vehicle is fully repaired. A collision claim will often be rated as an “at-fault” accident and raise your premium (the amount you pay monthly), but a UMPD has more flexibility and may not impact your premium at all. It’s worth checking in with your insurance company to see how they would rate a UMPD claim.

Note that liability coverage — which covers you for damage you cause to others or their property — typically doesn’t fall under your deductible. If you’re at fault, your insurance company will pay for any bodily injury and property damage (at least up to the coverage limit).

What car insurance deductible is right for me?

As your insurance premium increases, your deductible will decrease. If you choose a liability-only coverage level, your premium will be the lowest. With a $500 deductible, you’re paying an average of $87 more for your six-month premium than you would with a $1,000 deductible.

You’ll also want to consider how likely you are to file a claim. If you have a less-experienced driver on your coverage policy, like a high school student or someone who recently got their license, a lower deductible makes sense. However, if you don’t plan on using your vehicle very often or largely travel on roads with less traffic, a higher deductible could be the right move for you.

Finally, if you’re leasing or loaning your vehicle, you’ll probably be locked into a $500 deductible. Both the loaning company and insurer will want to make sure you can pay for anything that happens to your car, so a lower deductible increases the chances of that happening.

How does filing a claim affect my deductible?

In some cases, filing a claim will end up costing you with both your deductible and your premium. Your insurance company will typically see a collision claim as an at-fault accident, which stays on your record for three years. For a claim with damages north of $2,000, you could see your annual premium more than quadruple over those three years. If the value of your premium increase plus your deductible is more than the cost of repairs, you may just want to handle them out-of-pocket and not file a claim at all.  

Home insurance deductibles

With homeowners insurance, your deductible includes your out-of-pocket expenses before your insurance company covers the rest of your claim’s financial cost. In other words, you have to pay your deductible or your insurance won’t cover anything. If you have a $1,000 deductible and your house experiences damage worth $12,000, your insurance company will pay $11,000 while you handle the $1,000.

Your deductible only kicks in for property-specific coverage, including your dwelling (your main property), other structures like a detached garage or shed and personal property, like electronics or art. Home insurance will typically cover additional living expenses if needed after a natural disaster, personal liability or medical payments, though your deductible isn’t required for those.

Types of home insurance deductibles

A major way home insurance differs from auto insurance is in the type of deductible you can choose. Homeowners insurance will offer: 

• Fixed dollar standard deductible: Like with an auto insurance deductible, you’ll pay a certain amount before your insurance company covers the remaining portion of your claim. Typically, a fixed home insurance deductible will be between $500 and $2,000 per year.
• Percentage deductible: With this type of deductible, your coverage is still “fixed,” but rather than a set dollar amount, it’s a percentage of your dwelling coverage amount — the amount for which your main property is insured. For example, a home insured for $200,000 with a 2% deductible will require you to pay $4,000 before the insurance company covers the rest. Typically, a percentage deductible will be between 1-10 percent.

Deductibles for natural disasters

A homeowners policy can also have a deductible for natural disasters. This type of coverage is most typically a percentage of your dwelling coverage, though fixed rate options are possible, too. In some cases, your homeowners policy will already cover a certain type of disaster (such as wind or hail). Other times, you’ll need to purchase additional coverage for specific disasters.

Each of these disasters have their own deductible rules, so check with your insurance agent to clarify what the deductible looks like for any kind of disaster. If you live in Florida, for example, you can get hurricane and windstorm disaster coverage; depending on where you live, you may find flood and earthquake coverage, too.

What homeowners insurance deductible is right for me?

Similar to auto insurance, as your home insurance deductible increases, your monthly premium decreases. It might be tempting to choose a higher deductible and lower the payments you make every month, but that strategy doesn’t come without risks.

If disaster strikes and you need to file a claim, the financial burden could be higher than you’d like. If you have enough money saved up for a high deductible, that might be the right choice. Otherwise, try to find a balance between your deductible and premium so you’re not feeling overwhelmed in either situation.

Discover your individual homeowner factors here and find an option that works for you.

Other types of deductibles

You may come across deductibles in insurance besides auto and home. Most likely, your health insurance will have some kind of deductible. Similar to the above, a deductible is what you pay on eligible medical costs before your plan starts paying.

However,  you may make several visits to doctors before you reach your deductible. Expenses like hospital bills, lab tests, surgery, anesthesia, scans or medical devices will typically count toward your deductible. If your deductible is $1,500 and you need to do a series of lab tests that cost $100, those visits would cumulatively go toward your deductible.

A medical plan may also include copays and coinsurance. A copay is a flat rate you pay whenever you see your regular doctor or a specialist. In-network visits generally cost less than out-of-network visits. Copays, along with your monthly premium, don’t usually count toward your annual deductible.

Coinsurance is a percentage of the medical costs you pay once your deductible has been met. For example, if you have a 10 percent coinsurance and undergo a CAT scan that costs $2,500, you’d pay $250 while your insurance company or health plan covers the other $2,250.

You may also find deductibles in travel insurance plans. This is the amount of money you’re required to pay before your plan will pay for any emergency medical benefits during a trip. Multi-trip plans always come with a deductible, while most single-trip plans feature a deductible (typically $250) that can be increased, decreased or removed. Any of those changes will impact your premium one way or the other.